MRR vs ARR: How to Calculate Both

Monthly recurring revenue (MRR) is the committed, repeating revenue your customers are contracted to pay per month, normalised so every billing period contributes the same amount each month.

Annual recurring revenue (ARR) is that monthly figure multiplied by twelve. It describes the current run-rate, not what you collected over the last year.

MRR = Σ (plan revenue normalised to one month)
ARR = MRR × 12

Booking the annual plan at $1,200 in the month it is invoiced creates a spike followed by a cliff, and every metric built on MRR — growth rate, ARPU, LTV — inherits the distortion.

• Setup and onboarding fees — charged once, so they are not recurring.
• Professional services and custom work — project revenue, even when it repeats with the same customer.
• Hardware and physical goods — product revenue, not subscription revenue.
• One-off overages — usage above the committed plan, unless the customer is contractually committed to a recurring minimum.
• Trials and free plans — no committed revenue until they convert.
• Taxes and pass-through charges — collected on behalf of someone else.

Usage-based pricing is the grey area. A committed minimum is MRR; variable consumption above it is usually reported separately as usage revenue so the recurring base stays comparable month to month.

net new MRR = new MRR + expansion MRR − churned MRR − contraction MRR

A flat MRR total can hide $5,000 of churn offset by $5,000 of acquisition. That is a materially worse position than the headline suggests, because the acquired revenue had a cost and the churned revenue did not come back. This is why the SaaS quick ratio is built from the four components rather than the net figure.

Three different numbers get called “annual revenue”:

• ARR — MRR × 12, the current run-rate.
• Trailing twelve months (TTM) — what you actually collected over the past year. For a growing business this is always lower than ARR.
• Annual contract value (ACV) — the annualised value of a single contract, used for sales metrics rather than company revenue.

Mixing them is a common source of overstatement in investor updates. State which one you mean.

For a normalised MRR column, with the plan price in A2 and billing period in B2:

=A2/12   when B2 = "annual"
=A2/3    when B2 = "quarterly"
=A2      when B2 = "monthly"

Then sum the column and multiply by twelve for ARR. Build the waterfall as four separate columns so the movement stays visible instead of being buried in a net total.

• Booking annual plans at face value. The error that distorts every downstream metric, including LTV and the LTV:CAC ratio.
• Including services revenue. It makes MRR jump with project timing and destroys month-over-month comparability.
• Reporting only the net change. New and churned revenue have different implications; always show the waterfall.
• Counting trials. A free trial is not recurring revenue until it converts.
• Confusing ARR with bookings. A signed multi-year contract is a booking; only the current year is ARR.

Run your own numbers through the MRR & ARR calculator, which normalises the plans, builds the waterfall and derives ARPU.